Read This Before Considering Ebro Foods, S.A. (BME:EBRO) For Its Upcoming €0.1782 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ebro Foods, S.A. (BME:EBRO) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Ebro Foods' shares on or after the 26th of June will not receive the dividend, which will be paid on the 28th of June.

The company's next dividend payment will be €0.1782 per share, on the back of last year when the company paid a total of €0.66 to shareholders. Looking at the last 12 months of distributions, Ebro Foods has a trailing yield of approximately 4.2% on its current stock price of €15.58. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Ebro Foods has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Ebro Foods

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ebro Foods is paying out an acceptable 54% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 26% of its free cash flow in the past year.

It's positive to see that Ebro Foods's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Ebro Foods earnings per share are up 6.9% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Ebro Foods has lifted its dividend by approximately 1.0% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid Ebro Foods? Earnings per share growth has been modest and Ebro Foods paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, it's hard to get excited about Ebro Foods from a dividend perspective.

While it's tempting to invest in Ebro Foods for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Ebro Foods you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com